Agoracom Blog

How To Avoid Losing Your Money To Scam Small-Cap, Micro-Cap Stocks – 7 Fast Tips

Posted by AGORACOM at 10:54 AM on Sunday, February 18th, 2007

Good morning. Despite vast sources of education and research on the web, staggering amounts of money are being invested and lost in scam stocks. This space is a great one to invest in and profit from if you use some common sense techniques, however, many investors are still treating investments like the craps table at Bellagio and just laying down bets without much thinking involved. My anecdotal research tells me much of this can be attributed to just plain laziness.

As such, here are 7 sure fire techniques to help you spot and avoid a scam stock in under 5 minutes:

  1. Filing Financial Statements – Good companies file quarterly and annual financial statements with the SEC ( ) or OSC ( If you have found a company that doesn’t file, run.
  2. Bad People – People who run pump and dump scams usually have a history of doing so. Take 5 minutes to Google officers and directors of any small/micro you are planning to invest in. Add on terms such as “fine” “penalty” “complaint” to improve the result. If someone pops up, run.
  3. Commercial Acceptance – If a company is achieving $1,000,000 in annualized revenues, then they have achieved commercial acceptance and stand a good chance of creating a good company. Less than that and they haven’t proven themselves yet. It doesn’t mean the company is necessarily a scam but it does mean you are running the risk they never get sales off the ground.
  4. Stock Spam – If the company is engaged in stock spam, then chances are you have just run into a pump and dump. Check sites such as SpamNation which reports on stock spam on a daily basis. One caveat, there are several occasions when companies are unknowingly spammed by investors who have taken a position in the open market and trying to promote it via spam. Check and see if the company has issued a public statement disavowing any connection to it.
  5. Sniff Test – A big part of investing in this space is common sense. This is due to the fact very little media and analyst coverage exists in the space for investors to rely on. As such, you need to run the following sniff tests. First, if a company is introducing a “revolutionary” product, is it something you would buy and do they have the cash in the bank to market their product? If the company is introducing a better mouse trap, will they be able to carve out market share from existing players? On this latter point, refer to point #3 above. If they have achieved commercial acceptance, than they have a good chance of multiplying their business.
  6. Market Capitalization – This is a simple one. Multiply the company’s outstanding shares by its share price and you get the company’s market valuation. If it is $100 million with only $100,000 in sales, run.
  7. Spiking Stock Chart – If the company has a chart that looks like a hockey stick over a short period of time (i.e. less than 30 days) on dubious news, you’ve run into a stock promotion and will be left holding the bag. The caveat here is for companies that have achieved that stock run on good, real news (big customer order, big discovery, etc.)

The small/micro-cap space is a great place to make phenomenal gains on up and coming companies. Use my 7 tips and you should prosper for a long time to come.


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